Manufacturing Activity Strengthens In September - October 1, 2013

Amidst all the headlines regarding today's partial government shutdown and the far more critical approaching deadline for extending the debt-ceiling, the Institute for Supply Management (ISM) reported a surprising acceleration in manufacturing activity last month.

Specifically, the ISM, an Arizona-based trade group, reported that its survey came in at 56.2 in September, which was more than a percentage point above expectations (55.0) and somewhat better than the 55.7 reading registered in August. Moreover, this was the fastest rate for this important category in more than two years.

Breaking the report down, employment jumped to 55.4 last month, its best reading in more than a year, and well above the 53.3 reading in August. On the other hand, the forward-looking new orders index grew more slowly, registering a result of 60.5, which was off from the prior month's 63.2. It should be noted, that a reading above 50.0 suggests that the key manufacturing sector is growing, while results below that level imply that a contraction is under way.

It should be noted that manufacturing had moderated in the spring, but has since perked up, along with the aggregate economy. As to employment, this further improvement, along with data in recent weeks showing a steady decline in new jobless claims, suggest that the nation likely created some 180,000 new jobs in September. (It should be noted that the Commerce Department's monthly report on non-farm payrolls and the unemployment rate, which was scheduled to be issued on Friday, will be delayed due to the aforementioned partial government shutdown.)

Breaking the report down still further, the data showed, as well, that month-to-month improvements were indicated in production, supplier deliveries, and prices. Also, there was less of a decline (49.5 versus 46.5) in backlogs. Importantly, the prices index, which rose from 54.0 to 56.5 in the latest month, was a good sign, as the Federal Reserve has been correctly concerned about the possibility of deflation evolving. The price gains should lessen that unenviable outcome.

Meanwhile, the aggregate score of 56.2 was better than any reading in the last year, and compares very favorably with the average composite score of 52.4 for the past 12 months. Clearly, the earlier softness on the industrial side seems to have passed and, for now, this sector looks to be on a sustainable growth course. Indeed, the goings on in Washington could well have an impact here. But for now, the situation on the manufacturing front appears to be quite promising.

Taken as a whole, this was an uplifting report and one, which gives us hope that Thursday's release of the companion survey on non-manufacturing activity will be a decent one as well.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.